TY - JOUR
AU - Fullerton,Don
AU - Mackie,James B.
TI - Economic Efficiency in Recent Tax Reform History: Policy Reversals or Consistent Improvements?
JF - National Bureau of Economic Research Working Paper Series
VL - No. 2593
PY - 1988
Y2 - May 1988
DO - 10.3386/w2593
UR - http://www.nber.org/papers/w2593
L1 - http://www.nber.org/papers/w2593.pdf
N1 - Author contact info:
Don Fullerton
Department of Finance
University of Illinois
515 East Gregory Drive, BIF Box#30 (MC520)
Champaign, IL 61820
Tel: 217/244-3621
Fax: 217/244-3102
E-Mail: dfullert@illinois.edu
AB - The Economic Recovery Tax Act of 1981 reduced personal marginal tax rates and provided significant business tax breaks. Subsequent changes through 1985 cut back on business allowances. The Tax Reform Act of 1986 reduced marginal rates again, but added significantly to business taxes. Was there any unifying theme to these tax changes, or do they represent frequent changes in course for tax policy? This paper uses a general equilibrium model capable of second- best analysis to investigate the net effects on efficiency of each of these changes in capital income taxation. Under the new view that dividend taxes are unimportant investment disincentives, there is no set of other parameters in the model for which these changes generate improvements in efficiency. Under the old view that dividend taxes are important, however, these changes all increase efficiency for a wide range of values for other parameters in the model.
ER -